What I want to do
in this video is try to get a good understanding
of how the US federal income tax rate schedule
works, and also what people mean when
they say tax brackets, or what does it mean
to be in a tax bracket. So let's say that I make
$100,000, and I'm single, and I'm not going to go into
the deductions or anything fancy like that. So let's say I make
$100,000 in a given year. And these numbers will change
as the tax code changes, but the general idea
is the same thing, although the details
might change. So the way the
rate schedule works is that the first $8,350 of my
$100,000 will be taxed at 10%. So the first $8,350
will be taxed at 10%. So I'll be paying, what, that's
pretty easy to calculate-- I'll pay $835 on
that first $8,350. Now, the next $25,600, or
from $8,350 to $33,950, that will be taxed at 15%. So this amount right over here,
I will have to pay 15% on that. And so that the difference
between $33,950 and $8,350 is $25,600 times 15%. I'll calculate it all at
the end using a calculator. Now, the next $48,300 is
going to be taxed at 25%. So let me draw that over here. So the next-- this next
slug right over here is going to be taxed at 25%. So this is the difference
between $82,250 and $33,950. That's $48,300. So it's going to be
$48,300 times 25%. And then finally, the remainder,
the amount above $82,250, since I don't get into the
next bracket above that, this part right here is
going to be taxed at 28%. And let me get my
trusty calculator out to figure out what that is. So, if that's going to be
taxed at-- so the difference between $100,000 and $82,250. So $100,000 minus
$82,250 is $17,750. So it is $17,750 times 28%. And now I could
use the calculator to calculate all of these. So it's going to be--
let's do it all at once-- 17,750 times 28%-- so
I'll say that its 0.28-- plus 48,300 times 25%, 0.25,
plus $25,600 times 15%, 0.15. Finally, plus $835. I'm going to pay $21,720. So the sum of all
of these, in total, I'm going to pay-- I already
forgot the number-- $21,720. And I want to make sure you
don't have the misconception-- notice, you only pay the 28%
on the incremental amount when you enter that bracket. You don't pay this 28%
on the entire $100,000, just on the increment
above $80,250. You don't pay the 25%
on the entire amount, just on the increment
between $33,000 and $82,000.
